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How Do American Mortgages Work? Part 6: The Federal Agencies

Since the housing market is so massive in the United States the government had to be regulating the market in some way. With some agencies created in the midst of the Great Depression and some after the housing bubble burst. These three primary agencies are there to help the consumer and the lender whether it’s regulating the market or insuring less risk onto the lenders, they are there to provide an efficient mortgage market in America.

After the housing bubble burst, the United States government wanted to make sure nothing of this severity ever happened again. President Obama and the Congress signed in the Dodd-Frank Wall Street Reform and Consumer Protection Act in July 2010 that created the Consumer Financial Protection Bureau (CFPB). The goal of the organisation is to watch out for American consumers in the market for consumer financial products and services. Since this agency was only focused on the consumer rather than on monetary policy or bank safety, it puts all the agencies focus on protecting the consumer from unfair processes and illegal activity from products and services.

An agency aimed more to the lenders than the consumers is the Federal Housing Administration (FHA). In 1934 to help lenders take on less risk for loans, the Congress created the FHA. The aim of this agency is to insure loans that meets the FHA regulations, in that case when a default on a mortgage occurs it will protect the lender from losses. The FHA-insured Loans are separate loans on their own. Americans will qualify for them if they don’t qualify for a conventional loan, such as a lower than average credit score or can’t afford the larger down payment. To obtain this loan, FHA borrowers are required to pay an upfront insurance premium with an annual payment as well.

Before the FHA existed they were two million construction workers out of jobs, the requirements of a conventional loan were very difficult to meet, the loan will only go up to 50% of the house’s value with a term of only 3-5 years, and only 4 in 10 of households owned homes with the rest stuck renting. In 1965 the FHA became a part of the U.S. Department of Housing and Urban Development (HUD) which is an agency ensures fair and equal housing opportunity and oversees federal programs that assist Americans with their housing.

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